Boeing cited for overcharging on Chinook program

by Tim Logan, St. Louis Post Dispatch
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Boeing Co.’s St. Louis-based defense unit overcharged the Pentagon by as much as $16.6 million for parts on the CH-47F Chinook helicopter, according to an audit obtained by Bloomberg News.

The news service on Monday published a report, dated in June, by the Pentagon’s Office of the Inspector General which detailed how Boeing charged the Army for new parts on the Chinook while often installing less-expensive used or salvaged ones. The difference in the value between the new and used parts ranges from $7.4 million to $16.6 million. The report found an additional $15.1 million in overcharges on other parts.

The report found that Boeing overestimated the need for spare parts on the helicopters and installed refurbished parts while charging new-part rates. Boeing still owns the new parts even though it didn’t install them, the report points out.

A Boeing spokesman said the company had not seen the report until it was published by Bloomberg, but that it “disagrees with the IG’s conclusions.” The Chinook job, notes spokesman Damien Mills, was a fixed-price contract to refurbish and upgrade helicopters returning from service in Iraq and Afghanistan and the company had to estimate the price without actually knowing what the job would cost.

“It’s the nature of fixed-price contracting,” Mills said. “You’re relying on reasonable assumptions to remanufacture aircraft you haven’t seen yet. If they’d been more damaged it would have cost more and gone the other way.”

The dollars involved are relatively small in the scope of the $4.4 billion Chinook contract Boeing won in 2008. But this is the fourth time in five years that the OIG has found the company — which has its $32.6 billion defense operation headquartered in north St. Louis County — collected excessive payments on Pentagon contracts.

A spokeswoman for the Pentagon OIG could not be reached for comment. Her email said she was off duty because of the federal government’s partial shutdown. Comments in the report itself faulted defense agencies for lax negotiations and contract management. Under the terms of the Chinook contract, a Pentagon spokesperson told Bloomberg, it does not appear Boeing is under any obligation to repay the extra money.